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CALGARY — There’s a buyers’ strike in the oil sands. At least a half dozen energy companies have come up dry in efforts to attract the rich bids they envisaged when they put oil sands assets on the auction block in the past year, showing downward pricing pressure on a sector touted as the cornerstone of Canada’s economic growth.
Would-be buyers and joint venture partners are balking at deals amid a combination of wildly volatile Canadian crude prices, rising development costs and weakening returns, a situation that could force the industry to temper heady expectations for long-term oil sands production growth.
Marathon Oil Corp., Murphy Oil Corp. and Athabasca Oil Corp. had sought buyers and partners in the Northern Alberta oil sands, but now have changed their minds – or in Athabasca’s case, have told investors to hang tight after the company failed to clinch deals that had once appeared imminent.
Those companies join ConocoPhillips Co., Koch Industries Inc. and Royal Dutch Shell PLC in being disappointed after putting properties up for sale that may have once attracted bids totalling in the billions of dollars. Those three say they have rethought their plans after offers failed to meet expectations.
Unsold assets are another indication that oil price uncertainty, competition for limited pipeline capacity and high industry costs are turning away investment in the world’s third-largest crude reserves after those in Saudi Arabia and Venezuela.
The deals slowdown may also add to a pullback in the sector’s spending and development frenzy.
Suncor Energy Inc., Canada’s largest oil company, is spending about $1-billion less on its oil sands projects this year compared with early expectations for 2012, while reviewing costs.
“We as a shop haven’t been bullish on oil sands for over a year. Part of the reason for that is that costs keep going up and the revenue is not following. This is an unusual situation from over the last 10 years,” said Samir Kayande, an analyst and oil sands evaluation expert with research firm ITG Inc. “Over the last 10 years, you would make investments in marginal projects and the commodity price would always bail you out.”
That seems like a distant memory. In the past half year, the discount on Western Canada Select heavy blend crude versus benchmark West Texas intermediate (WTI) widened beyond $40 a barrel, boomeranged back to as little as $12, and is now about $20.50, according to Net Energy Inc.
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